Founder And CEO- Al Masah Capital Limited

March 26, 2018

Challenges in the Education Sector

Within GCC, countries like KSA and UAE are heavily spending in the education sector with the aim of competing and being at par with the top 200 international universities and institutions around the world. KSA is expected to have spent SAR 228 billion (highest after military expenditure) in education sector in 2017. Although it continues on its agenda for education, the government has earmarked SAR 192 billion towards public and higher education and workforce training for the year 2018; a 15.8 percent fall in expenditure.

In the case of UAE, Dh10.4bn has been allocated for general education and higher education, totalling 17.1 per cent of ‎the overall budget for 2018.

Overall, GCC spends $150 billion every year on education but challenges persist. Some of these challenges include insufficient pool of qualified teachers, difficulty in attracting and hiring skilled teachers, an increase in school construction costs, introduction of VAT, lack of diversity in programmes leading to a skills gap in higher education and economic uncertainty putting financial security of some education institutions under intense pressure.

In the case of UAE there is a need to hire a minimum of 14,000 teachers over the next five years. Nationals prefer higher paying public sector jobs over teaching jobs. This leaves the schools ending up hiring foreign teachers at attractive salaries thus raising costs of schooling for parents.

Construction costs are also on the rise in the region making schools a highly capital intensive venture for the private sector. The cost of construction has increased in the region as a result of increase in wages of contractors and workers along with an increase in cost of building materials. The cost of construction in Qatar is the highest across the GCC. Both the quality of teachers and construction costs result in higher tuition fees. For instance, Dubai is seeing a need for more quality schools below AED 40,000.

According to PWC educational institutions are expected to see an increase in their costs as a result of VAT in the GCC. There will be issue as Deloitte points out. First, defining what is educational vs. what is not will be difficult in some countries and is often tied to local education law. Second, if exemption applies, then VAT will become a cost on expenditure and if zero-rating applies, then VAT refunds and cash-flow will be an issue. EY highlights that tuition fees, school fees and trainings provided by private institutions in KSA will be subject to VAT. In addition, VAT will impact on going procurement contracts, human resource cost for the institution (e.g accommodation, gifts) and timing of supplies.

The government in UAE is focused towards promoting STEM subjects to promote diversity in the kind of courses offered. However, the field Business and Economics remains popular for university graduates, thus posing a challenge for the government wishing to bring in diversity (PWC) and lead to a potential skills gap in the country.

By far, the regions’ education sector has come a long way as a result of its governments’ unfettered resolve to establish institutions that are comparable to those in developed countries. However, with continuous efforts, governments will hopefully overcome these bumps in the road to excellence.